Dec 10, 2001|
Budget 03: More challenges ahead...
With barely 3 months left before Mr. Sinha delivers a set of yet another promises in his third budget, the finance minister seems to be sending some confusing signals. While at times he is concerned about the fiscal deficit situation, the next day, he informs corporate bigwigs that he was ready to ignore fiscal deficit if it is able to help him in logging strong GDP growth rates.
Though, the intention of the FM was to reassure an economy that is struggling to stave off a recession, he somehow fails to realize that practically he has already ignored the fiscal deficit. Net tax revenues up to the end of October amounted to a modest 39% of the budgeted Rs 1,630 bn. On the borrowing front, the government has already completed 91% of its budgeted borrowings. It is almost certain that the government would overshoot the fiscal deficit target of 4.7% of the GDP this fiscal. The slippage therefore seems inevitable even without the pump-priming measures promised to reverse the current economic slowdown.
More interesting is the talk of the center going in for extra plan spending over and above the budgeted level despite the total plan expenditure during April-October'01, at Rs 458 bn, being just 48% of the budgeted Rs 951 bn. In other words, the various ministries have not been able to spend even the plan amounts allocated to them. It remains to be seen how pump priming would be possible when the center doesn't seem to have the capability to spend even what was originally allotted. The ministries may not really be in a position suddenly to step up their plan spending given that a host of clearances are required to have the monies released.
If the fiscal deficit has been widening, it is because revenue flows have been sluggish. For the record, the FM still hopes to meet the budgeted direct tax collections of Rs 848 bn, expecting a higher mop up from the third and fourth installment of advance tax. But with the corporate sector finding it hard to maintain profitability the taxman will not have it easy. Customs revenue is still way below the current year's target mainly because of the decline in the oil import bill following the softening of international crude prices. Excise collections too may not reach the budgeted target of Rs 817 bn given the wide slippages in industrial production.
Mr. Sinha's budget assumes all the more significance considering the fact the current year would be taken as the base year for the tenth five year plan envisaged for the five year period starting April'02.
Over the last 3 budgets, the finance ministry has shown his bias towards kick starting second-generation reforms. However, not much has actually fructified. Mr. Sinha has no doubt achieved some success in streamlining the tax structure to a large extent and marginal success in kick starting labour reforms. But not much headway has been achieved in terms of GDP growth with the same languishing much below the Ninth five-year plan's target. Both private and public investment remains at abysmally low levels. The performance on the optimistic divestment target of the government in ninth five-year plan can be termed as 'pathetic'.
On the other hand, overall corporate sector still doesn't seem to be comfortable to take on global competition even after a decade of liberlisation. Private investment just does not seem to be picking up due to a lack of confidence in new ventures.
After 2 years of significant drop in GDP growth, the challenge before the FM is to implement the so-called second-generation reforms. Otherwise, the tenth five-year plan would also be more dreams, less reality.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407